City Council Approval Of Three 4-Diamond Hotels Is In Anaheim’s Best Interest

[Cross-posted from OC Daily]

This Tuesday the Anaheim City Council will vote on applications from three 4-diamond hotel projects to participate in the city’s Hotel Incentive Program; among them is Disney’s first new hotel project in more than 15 years. The meeting will doubtless be a donnybrook involving the various forces that have been contending over Anaheim’s future trajectory.

Anaheim’s policy of using Transient Occupancy Tax rebates to encourage 4-diamond hotel development has become shrouded in such a thick of misinformation and over-heated rhetoric that its difficult for the public to separate fact from fiction. Nonetheless, such a sorting is vital to an informed public debate.

First, let’s set the table with facts.

The as-yet unnamed Disney property is an approximately 700-room, 4-Diamond rated hotel planned for a 10-acre site in the Downtown Disney parking lot. It will create an estimated 5,000 construction and, and more than 2,000 permanent jobs as part of hotel operations. It will generate more than $150 million in revenue for the City of Anaheim from Transient Occupancy Tax (TOT), property and sales taxes.  It’s estimated during the next 40 years, the new Disney property will generate approximately $750 million in TOT revenue.

The Wincome Group plans to demolish two existing hotels — the 3-Diamond Ana Bella Hotel and the 2-Diamond Anaheim Plaza & Suites Resort — and build two 4-Diamond properties –a 580-room, $208 million project on the Anaheim Plaza site and a$225 million, 700-room luxury hotel would be built on the Ana Bella site.

It’s estimated both projects will create an additional 4,000 construction phase jobs (direct, indirect and induced) and 1,100 permanent hotel jobs, and generate nearly $500 in new tax revenue over 20 years.

What is the Hotel Incentive Policy?
In 2013, the city council approved an economic assistance agreement for the development of two 4-Diamond hotels (the GardenWalk project). Under this agreement, the developer receives an incentive payment (or subsidy) equal to 70% of the TOT revenue generated by the hotel for a period of 20 years – only after they open and only if they’re successful.

Two years later, adopted this formula as the city-wide Hotel Incentive Policy to encourage the building of 4-Diamond hotels, utilizing the same 70-30 split. Of the 30%, 20% goes toward paying Resort bond debt, and the 10% goes into the general fund. These are tax revenues that do not currently exist, and will only materialize when participating hotels open for business. It does not involve new city spending nor does it impact the general fund.

There are sound policy reasons for this strategy. 4-Diamond properties make the Anaheim Convention Center a more attractive destination for higher-dollar conventions, conferences and shows – whose more affluent attendees spend disproportionately more in the Resort. Of the nation’s major visitor markets, Anaheim has the fewest 4-Diamond hotels:

4-diamonds major markets

Not only do 4-Diamond properties generate better-paying jobs, they also yield far more in tax revenue than the limited-service hotels that predominate in the Resort. A 4-Diamond hotel will generate three times as much TOT revenue as a limited-service hotel on the same size site. Every dollar increase in a hotel’s average daily rate translates into an additional $1 million in revenue for city services.

Of the 78 hotels in the Resort District, only two are hold 4-Diamond ranking: the Grand Californian Hotel and the Disneyland Hotel. Together with Disney’s limited-service hotel, Paradise Pier, they produce one-third of all TOT revenues collected by Anaheim.

one-third

That enormous differential illustrates why the city has pursued this policy, because addition of just a few additional 4-Diamond properties dramatically increases economic activity and tax revenue for the city.

It has been almost 20 years since ground was broken a 4-Diamond property in Anaheim (the Grand Californian). Of the 17 hotels built in that time, none are 4-Diamond properties. Since adoption of the present subsidy formula, however, five 4-Diamond hotels have been approved or are in the planning process.

Here’s another way to look at the positive economic benefits this policy in terms of these three proposed luxury properties:

  • Replacing 10-acres of parking lot with the proposed Disney luxury property at 1401 Disneyland Drive creates $132.3 million plus in new city revenue.
  • Replacing the 2-Diamond Anaheim Plaza Hotel and Suites with a 4-Diamond property generates $40.7 million more in revenue than the current hotel.
  • Replacing the 3-Diamond Ana Bella Hotel with a 4-Diamond hotel generates $20 million more in revenue than the current use.

The Resort Is The Foundation Of Anaheim’s Fiscal House
Over time, critics of these agreements have taken to painting the Resort as a liability rather than an asset to the city, alleging it is a drain on city resources. In fact, the opposite is true. Consider the following:

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6 comments

  1. Thanks for the analysis.

    This whole time, I thought a Four DIAMOND property was an upstairs apartment in Brea, occupied by Greg Diamond and his four family members.

    You know the same place that houses the law office in the kitchen.

    • That’s very funny! Do they cook the books in the kitchen?!

    • I have been watching Mr. Diamond get slammed by these post for years.

      I can tell you one thing and that is when he passes away he is going to have 100’s upon 100’s of people at his funeral who are going to miss him very much including a wife and children that absolutely adore him and want nothing more then what he has given them which is his undivided love and attention. He has a lot of real fans and friends out side these blog posts and he has done a lot of good for a lot of people because his work comes from his heart. You can respect a man that has passion about a his ideas even if you don’t like what he says.

      Just looking at the big picture here and that day is coming. I know who’s funeral I will be at and I am going to be standing by some very cool people.

      Notwithstanding I wish you all a long life and remember its never to late to change.

      God bless everyone.

      • That’s good because you need at least 100 pallbearers to carry the casket!

      • Thank you for the sweet and kind message, Jesse — not at all what I expected to find when I came onto this side today to see the slobbering celebration of the looting of Anaheim’s future.

        I don’t know who you are, based on your first name alone, but please do get in touch with me. My eventual funeral (or memorial service, more likely) will probably be by invitation only, to spare my family’s feelings from having to endure the sight so many insincere and backstabbing “well-wishers” from my own party — and I wouldn’t have wanted to live my life in such a way that I wouldn’t made such sorts of enemies. It would mean that I hadn’t tried to challenge the wrongs in the world.

        Come to OJB and let me know who you are, so that you can be on the guest list. Thanks for your decency, no doubt largely unappreciated here.

      • Sure Jesse –
        He’s not bad for a misguided, condescending, pompass bloviator.

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